How to get a business loan in the UK

If you’re already in or going into business for yourself, one of the first stops might be getting a business loan.

This isn’t always easy. Convincing a bank to hand over some of their money to you can take quite a bit of persuasion.

So, if you’ve never done this before, here’s the basics of how to get a business loan – and everything you need to know about what this kind of loan is and what it’s for.

What is a business loan?

A business loan is a way of borrowing money – usually at a relatively reasonable rate – for the purposes of opening or growing a business.

You can usually borrow somewhere between £1000 and £3 million – depending on the size of your company – and be expected to repay in anywhere from a single year to within the next thirty years.

Business loans come in several types:

• Secured business loans – call for you to put up some of your assets as security. Property, stocks and shares are all common types of assets used to secure loans. Some lenders will also consider third-party security options. Many British banks follow the Enterprise Guarantee Scheme, which replaces the old Small Business Loans Guarantee scheme, but does essentially the same job of giving banks a reason to lend you money.
• Unsecured business loans – do not require you to put up assets. However, you may need to guarantee that you will personally repay the loan if your business can’t for some reason. Unsecured loans, as you might expect, tend to have higher rates of interest than secured ones.
• Start-up loans – are a special type of business loan specifically for people who are starting a business. This type of loan may help you overcome most banks’ natural proclivity for not lending to businesses without a clear trading history.

Things to consider before you get a business loan

There are a few important questions to ask yourself before you go ahead with any business loan:

• How much is the interest rate? Is that rate fixed?
• How long will I have to repay it?
• Can I afford to repay it?
• Will I be charged if I pay it back early or late?
• What assets do I have to secure the loan?

How to apply for a business loan

When you apply for a business loan, your lender will want you to provide some documents and proof. They will usually send these to a specific internal department to judge whether it’s safe to lend you money. You will normally need to provide proof of:

1. UK address
2. No outstanding CCJs (Country Court Judgements)
3. No late payments on your record
4. A good business credit score
5. Ability to repay the loan
6. The assets that you are providing as security exist

This proof might take the form of things like a cash flow analysis or a profit and loss forecast. You will also almost certainly have to go into the bank in person for an interview.

What happens if you use a personal loan for business?

It is possible to use a personal loan for business purposes. However, every lender will ask you what you want a personal loan for and you may be refused if it’s for business purposes. It’s always worth checking what a particular institution thinks about this sort of thing before you apply.

It’s also worth noting that if you do use a personal loan for business purposes, it’s you personally who will have to repay that loan if your business can’t cover the payments. In case you can’t cover them either, your credit rating is likely to suffer.

Where can I get a business loan?

You can get business loans and start-up loans in various types and flavours from lots of the big-name banks – the ones you can find on any high street. The downside of this widespread availability is that most big banks are very reluctant to lend to businesses which don’t have a proven track record behind them.

This means that most big lenders you will find can be a daunting prospect for small business loans. Though it might be worth checking offerings from:

• Barclays Bank
• Royal Bank of Scotland Business
• Santander
• HSBC Business Loans
• Lloyds Bank Business Loans

What is the easiest business loan to get?

There are easier options out there. Some lenders have been specifically set up to lend to start-ups. Others are keener to do so because they themselves are newcomers to the field.

For a slightly easier acceptance of your business loan proposal, you might try:

• British Business Banks – can be a good choice for first-time business owners as it was specifically created to lend to start-ups. They also provide mentoring and other guidance for borrowers, which can be very handy indeed.
• Virgin Startups – the Virgin brand has taken some deserved heat in recent years. But this not-for-profit arm of Branson’s empire is designed to lend to start-up companies, so it might be worth a look.
• NWES – is a government-funded loan provider created with the aim of helping over-18s start or grow their business

How to get a business loan to buy a franchise

Getting a business loan for a franchise is usually much easier. After all, one of the main reasons people choose to buy a franchise rather than go into business as a solo entrepreneur is to have the support of a major brand behind them. Banks are no exception to this line of reasoning.

Armed with the support and big name of your franchisor behind you, you’ll find it much easier to get your bank to start seeing things your way. Because from their point of view, big, established business is a much safer investment.

Of course, that’s not the only reason to become a franchisee:

As a Fantastic franchisee, for instance, you’d be your own boss of a business which has access to the latest industry innovations. That’s as well as getting access to industry-leading processes and a regular number of clients found for you by the marketing we do on your behalf.Find out more about our franchise opportunities when you contact us today.

• Last update: March 1, 2022

Posted in Advice Hub